What is guaranteed future insurability?

When you take out a life insurance policy, it may be tricky to predict the level of cover you need now to protect you in the future. To help you adapt your policy as your needs and circumstances change, some insurers may offer guaranteed future insurability. So, how does guaranteed future insurability work and what life events does it usually apply to?

There are many events in your life that can be hard to predict, such as marriage, divorce, having children or starting a business. As these events occur, you may decide that your life insurance policy no longer provides an appropriate level of cover to safeguard you and your family. Rather than anticipate these changes when you first take out a life insurance policy, you can check to see if your policy has a guaranteed future insurability feature. This feature allows you to increase your cover after specific life events occur. At the time of writing, 62% of direct life insurance policies on Canstar’s database have a guaranteed future insurability (GFI) benefit included.

Q&A with David Wilkinson from TAL Insurance

Canstar spoke to Senior Product Manager at TAL Insurance, David Wilkinson, about guaranteed future insurability, including how to get it, who it’s best suited to and some potential pros and cons of increasing your insurance cover.

What is guaranteed future insurability?

Guaranteed future insurability is a benefit included in many life insurance policies. It means you can increase your life insurance, and possibly your total permanent disability (TPD) or trauma insurance benefit amount(s), without needing to provide an insurer with further evidence of your continued good health when specific life events occur. For example, you could increase your cover upon marriage or divorce, obtaining or increasing a mortgage, or increasing your financial interest in a business.

What products can guaranteed future insurability apply to?

Guaranteed future insurability is generally available under a direct life insurance policy. Many policies also provide guaranteed future insurability benefits for TPD and trauma insurance cover too.

What life events does guaranteed future insurability usually apply to?

Some of the life events where guaranteed future insurability may apply include:

• becoming a new parent through birth or adoption
• getting married or divorced
• having a dependent child starting school
• completing a university degree
• becoming a full-time carer
• having your annual income increase by $10,000 or more
• taking out or increasing a mortgage on your home
• having an increase in your financial interest in a business that the policy is related to, via a buy-sell, share purchase or succession agreement (these agreements relate to the ways in which remaining shareholders or partners may increase their share of financial interest in a company after specific events, such as the death or resignation of a shareholder)
• having an increase in the loan liability of a business that you are the primary guarantor for (the loan liability of a business is the amount of debts, liabilities and any other obligations that may be owed)
• having an increase in your value to a business that you are a key person in

Depending on the event, maximum allowable increases in cover amounts will apply. Each insurance company and policy has a different way of expressing these limits, but they generally follow a format of a percentage amount, say 25% [as one example], of your original cover amount, up to a dollar limit per event. For example, the limit of any individual cover increase may be 25% of the benefit amount at policy commencement, or $200,000, whichever is less.

Who may guaranteed future insurability be best suited to?

Guaranteed future insurability may be suitable for anyone who wants to safeguard their ability to increase cover amounts in the future. For example, if a young couple took out a mortgage on their home and wanted to increase their life insurance to help cover the mortgage repayments, they could potentially do so by using guaranteed future insurability, even if their personal circumstances or health has changed since taking out the policy. Furthermore, if this couple were to have children, they could also use guaranteed future insurability to increase their life insurance cover so that the costs of raising and educating their children may be financially safeguarded into the future.

People who have financial interests in a business may also benefit from a guaranteed future insurability benefit as it can help to ensure increasing financial responsibilities to a business can be protected in the event of serious illness, TPD, terminal illness or death.

How can I get guaranteed future insurability or use it to increase the cover amount of my current policy?

Guaranteed future insurability is a feature of many direct life insurance policies, and is usually a built-in benefit. You should check to see if your policy provides it. If it doesn’t, and you want to ensure you can get additional cover as life events change, you can always shop around for a life insurance policy that does include it.

Increasing your cover using your guaranteed future insurability is usually a relatively simple process. Contact your insurer to discuss your options and get quotes for the additional cover. Your insurer is likely to ask for proof of the event following which you would require the additional cover. Often this can be arranged over the phone. Some examples of the proof that may be required include a marriage certificate, registration of a de facto relationship, mortgage papers, death and birth certificates and a certificate of enrolment in a school.

What are the potential pros and cons of a guaranteed future insurability feature?

The main benefit of having a life insurance policy with a guaranteed future insurability feature is that it can help you get additional cover as your circumstances change, without needing to go through the underwriting process and meet the insurer’s current acceptance criteria. This may save a lot of time and worry.

One of the downsides of a guaranteed future insurability feature is that there are usually age limits that apply. For example, most direct life insurance policies on Canstar’s database only allow you to use the guaranteed future insurability feature when you are under the age of 55, 60 or 65. There may also be limits on the increase in the cover amount per event and per year of the policy.

Another common feature of the majority of life insurance providers on Canstar’s database is that you can only take out a guaranteed future insurability increase in cover once every 12 months. Time limits may also apply and will mean you must use the guaranteed future insurability option within a specified period after the life event has occurred – usually within 30 days. There may also be a qualifying period after each guaranteed future insurability increase in cover, during which the increased cover may not be payable for certain illnesses or injuries.

What are some final considerations of guaranteed future insurability?

More information about the terms and conditions of a guaranteed future insurability benefit can be found within the Product Disclosure Statement (PDS) of a direct life insurance policy, which is usually available on the provider’s website. Alternatively, you can contact an insurer directly to discuss whether they offer guaranteed future insurability and what conditions are attached. Before adding or using a guaranteed future insurability feature under your life insurance policy you may want to consider talking with a financial advisor about your individual circumstances to help determine if this feature is right for you and your family.

Cover image source: Jajam_e (Shutterstock)